Term
| Business Judgment Rule and Wriggly Stadium |
|
Definition
|
|
Term
|
Definition
Facts: P filed a derivative shareholder suit against Am ex. for negligently decided on how to issue a dividend. Directors bought a stock at 30 mil it lost value ended up at 4 mil they decided to give it to shareholders as a dividend instead of offsetting their capital gains with these capital losses saving 8 million in taxes. Amex argued that recognizing such a significant loss in the open market would adversely affect the stock price.
Rule: Court says this was a legitimate business decision that was vested in directors and the court will not interfere unless there is fraud or dishonest conduct. |
|
|
Term
|
Definition
Facts: 5 inside directors and 5 outside Sold and merged the company at 55 dollars a share. Directors owed duty of loyalty and care so plaintiffs need to overcome BJR. Plaintiffs need to prove that there was disloyalty, bad faith, or lack of informed basis.
Facts showing lack of information: (1) no documentation ever presented (2) took oral presentation as gospel (3) Only 20 minute presentation (4) Share price was arbitrary (5) happened in 5 days
Law: BD must reach an informed BJ. Standard is "gross negligence- If an ordinary person would have done the same thing in like circumstances. The legal fiduciary duty is about PROCESS not whether best price is achieved. |
|
|
Term
| Francis v. United Jersey Bank and Failure to monitor |
|
Definition
Facts:Mother was extremely uninvolved, her sons stole over $12mm from the corp, the court found her liable also.
Reasoning/Law: Mother committed nonfeasance-->removes BJR. She was not up to snuff with minimal action to meet duty of care:(1) Be familiar with what the corp is doing (2)Regular (3)review of financial statements (4)Attend some board meetings (5) A rudimentary understanding of the business of the corp (6) (nothing too exacting) |
|
|
Term
|
Definition
Allows almost complete elimination of Care. Protects Directors for grossly negligent decision making processes on huge matters. However, even if you can still be liable for disloyalty and bad faith.
Damages: Does not protect directors against injunctive relief only monetary damages.
Response to Van Gorkam |
|
|
Term
|
Definition
| “Compliance with a director’s duty of care can never appropriately be judicially determined by reference to the content of the board decision that leads to a corporate loss, apart from consideration of the good faith or rationality of the process employed” |
|
|
Term
|
Definition
| Self Dealing, Usurping Corporate Opportunity, Cash-Out Mergers |
|
|
Term
|
Definition
A transaction where one director stands on both sides of a transaction will be judged under RIGOROUS scrutiny.
OR
Causing the corporation to contract with yourself in a individual capacity |
|
|
Term
|
Definition
Usurping Corporate Opportunity
Owed by directors and Majority shareholders to minority shareholder
Usurping is void if= disclosure + approval OR fair to take opportunity |
|
|
Term
| Cash out Mergers (loyalty) |
|
Definition
Cash-Out Mergers
Defendants: Directors, Majority Shareholders when dominant
Super loyalty= Fair dealing + Fair price
•Fair dealing (disclosure to board and shareholders + approvals),
•no misuse of proprietary information,
•sufficient time to consider cash out merger,
•proper structure for negotiation shareholder and board level
•Separate outside and inside directors don’t have them in the room have minority board holders (Outside directors) form negotiating committees to represent minority shareholders.
•For shareholders have majority of the minority approve |
|
|
Term
|
Definition
| F:Plaintiffs argued that hiring wife as singer for radio advertisement was a breach of the duty of loyalty. |
|
|
Term
|
Definition
Defense against Breach of Loyalty 144(a) 1,2,3
(1)Disclosure + disinterested director approval the transaction is SAVED
-Disclosure= (material facts), Disinterested (no financial interest + removed from situation i.e outside directors)+bias theory
(2)Disclosure + shareholder Approval
(3)Transaction is fair to corporation |
|
|
Term
| What are Disinterested Directors? |
|
Definition
Usually outside directors.
(1) No financial interest
(2) No familial interest |
|
|
Term
|
Definition
Facts: Broz the sole stockholder of RFB cellular was also on the board of CIS, as an outside director, when he outbid them in a cellular communications contract. Broz contacted several directors of CIS who said that they were not interested in acquiring the contract and they were not in any financial position to pursue the opportunity.
Rule: The court looks at the line of business Test (another notecard |
|
|
Term
| Corporate Opportunity Doctrine |
|
Definition
Owed by directors and Majority shareholders to minority shareholder.
Usurping unless= disclosure + approval
OR fair to take opportunity
Or not in line of business
Rule: Cannot benefit at the cost of the corporation from corporate opportunities derived from your position in the company. |
|
|
Term
| Interest Expectancy Test (Minority) |
|
Definition
Interest or Expectancy test; (minority test); does the corporation have an interest or expectancy in the opportunity? Do they have a contractual option to buy the opportunity?
RULE:Only if the corporation has a contractual option do they have an interest or expectancy. |
|
|
Term
| Line Of Business (DE line of Business Test) |
|
Definition
Line of Business test; (DE test most important)
Is the opportunity that you are fighting over within the corporation line of business?
Narrow: does the corporation do that thing now?
Broad: Is it within the line of business now or what you could adapt into the business being?
PLUS 2 factors
a) Did you discover the opportunity in your individual or corporate capacity?
b) Is the corporation financially able to undertake the opportunity? |
|
|
Term
|
Definition
Facts: AmSouth Bank allowed a Ponzi scheme in without much questioning and failed to meet some regulations. They were fined. The plaintiff said fines were proximately caused by the boards failure to meet their Caremark duties (failure to monitor).
Court Reasoning: Though the system failed (things weren't reported that should have been) the employee's failure to report isn't sufficient to hold directors personally liable. Utter failure or systematic failure is the qualitatively more culpable conduct that Disney speaks of-->actionable as a breach of loyalty but not care (no money damages) |
|
|
Term
Role of Corporations (social corporate responsibility)
AP Smith Mfg v. Barlow |
|
Definition
A corporation may participate in the creation and maintenance of community, charitable, and philanthropic funds as the directors deem appropriate and will, in their judgment, contribute to the protection of corporate interests. AP Smith Mfg. v. Barlow
Facts: Corporation wanted to donate to Princeton University; shareholders objected. Court upheld corporation’s judgment to donate. |
|
|
